The Permanent Budget Crisis

The looming debt-ceiling showdown will extend the fiscal crisis for months—or more.

John Boehner heads to the House floor to address members on the fiscal-cliff negotiations

Photograph by Chip Somodevilla/Getty Images.

If you want to know why the fiscal-cliff talks are having such a devilishly hard time reaching resolution, you need to look behind the issues—taxes, spending, stimulus, austerity—that are dominating this month’s debate and start looking ahead to the next debate.

Specifically, gaze dolefully forward to February or March or maybe April when the total volume of nominal federal debt will reach the statutory cap on borrowing—the “debt ceiling”—setting up a repeat of the legislative brinksmanship we saw in the summer of 2011. The debt ceiling is key because conservatives believe it gives them crucial hidden leverage that they currently lack, and because Democrats are determined not to settle for a short-term deal this month without resolving the debt ceiling for a while.

The debt ceiling, recall, is a curious American institution that we share exclusively with Denmark. Back in the 19th century, Congress specifically authorized each issuance of federal bonds. When World War I came along, this became tedious, so Congress simply appropriated the funds it thought would be required for the war and authorized the federal government to borrow a bunch more money as needed to spend what Congress had directed it to spend, up to a certain cap—the debt ceiling.

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Over the years, this evolved into a fun exercise in congressional hypocrisy and partisan grandstanding. Congress would pass laws setting the tax code, laws shaping entitlement spending, and annual appropriations for the military and civilian functions of government. When a gap arose, as it often did, the Treasury Department would, obviously, borrow the money. But every so often the combination of economic growth and inflation would guarantee that the government would run up against the authorized borrowing cap. At this point opposition party members of Congress would take potshots at the president. Back in 2006 when George W. Bush had to ask for an increase in the debt ceiling, then-Sen. Barack Obama called it “a sign of leadership failure” and proclaimed “Americans deserve better.” West Wingdid a jokey segment about it.

But after the sweeping GOP wins in the 2010 midterms, this took a darker turn.

Republicans began making noises about using the debt ceiling as leverage to force spending cuts. The Obama administration miscalculated that they could turn lemons into lemonade by forging a broad deficit-reduction deal involving spending cuts and more revenue, metaphorically “breaking” the GOP dogma on taxes. What we got instead was total Republican intransigence, a panic that crushed consumer confidence, and ultimately a kludgy deal that helped set the stage for today’s fiscal cliff.

The White House, naturally, doesn’t want to do it again. Once the debt ceiling has been weaponized as a tool for extracting real policy concessions, it creates a dangerous situation. Sooner or later one party or the other will set off the bomb, and actually send the United States into default.

To prevent this, the Obama administration has embraced a plan once floated by Mitch McConnell that will replace actual debt-ceiling threats with symbolic grandstanding. The Treasury Department will say it needs to borrow more, Congress can pass a resolution of disapproval if it disapproves, and then the president can veto the resolution. All the grandstanding, none of the white-knuckle panic.

What’s not been adequately appreciated by the press is the extent to which the Obama administration is deadly serious that this arrangement or one like it must be in any fiscal cliff deal. That’s not a bargaining posture. The administration’s analysts believe that going over the fiscal cliff temporarily would be damaging to the economy, but that having a debt-ceiling fight hanging over the first quarter of 2013 would be equally damaging. If resolving the fiscal cliff doesn’t also resolve the debt ceiling, then nothing is accomplished for the short-term economy and any long-term deal is meaningless since Republicans will issue new demands in February when they have leverage.

But for Republicans, a debt-ceiling showdown increasingly seems to be their favorite plan. The simple fact of the matter is that there’s nothing they can do this month to prevent Obama from getting his way on income-tax rates for the rich. He insists higher rates must be part of any plan to avert the cliff, and the cliff itself includes the rate hikes.

Yet while conceding as much, Senate Republican leader Mitch McConnell recently told reporters that “we’ll have another opportunity later, when the debt ceiling issue arrives” to address tax and spending concerns that the GOP likely can’t win on in December.

What makes this so tricky to resolve is that Republicans, with some justice, see a debt-ceiling concession as a major one on their part. Holding it in their back pocket gives them a lot of leverage, leverage they don’t want to give up for free. But Democrats, with some justice, see a debt-ceiling resolution as an apolitical good government measure separate from ideological disagreement over the size and scope of government. The 2011 hostage-taking was unprecedented, and if it becomes routine it won’t systematically advantage either party—it’ll just hurt the country.

And unlike on taxes, military spending, Medicare eligibility, or anything else it’s hard to split the difference on the debt ceiling. The administration feels, as a matter of process and sound policy, that there’s no point in a deal that doesn’t defuse the debt ceiling. Republicans feel that the debt ceiling is the best bargaining chip they have. But to bargain for it would undermine the whole point of the administration’s new stance, namely that the debt ceiling is too dangerous to be used as a negotiating ploy.

Long story short, don’t expect this key sticking point to be resolved in the next three weeks, even if something is worked out to delay the implementation of the cliff. And don’t expect the parties to resolve their fundamental disagreement about American public policy either. Crisis politics will be with us for months to come, at least.